Occidental Petroleum thinks it can make money from decarbonising. That is a far cry from the $55bn bet the oil explorer made on rival Anadarko in 2019. That transformed Oxy into one of America’s biggest oil producers. Oxy’s next big gambit is carbon capture. Its version of the technology is daring too — “direct air capture”. The idea is to suck carbon dioxide directly out of the air and bury it underground.
Why move away from what you do best? Oxy’s shares were the top performer on the S&P 500 in 2022, rising 119 per cent. It earned a record $12.5bn in annual net income. Gushing cash flows from operations have allowed it to cut its debt load by more than a third, raise dividends and restart stock buybacks.
Houston-based Oxy thinks it can make money for shareholders from decarbonisation. It will build 70 DAC plants by 2035. The first, in Texas and costing $1.1bn, is expected to capture up to 500,000 metric tonnes of CO₂ per year. That is just a sliver of the 36bn tonnes of CO₂ emissions produced worldwide every year. But it is a start.
Oxy aims to store CO₂ underground for customers who want to buy credits to offset their own emissions. One study believes the market for carbon credits can reach $50bn by 2030. Oxy plans to use captured carbon dioxide to help pump oil and produce chemicals. It has already inked a deal to sell these so-called net zero oil products to a South Korean refinery.
Investors need to take the long view. This technology is nascent. The largest operation so far, in Iceland, captures only 4,000 tonnes per year. The DAC process itself has high energy requirements. This is where last year’s Inflation Reduction Act applies. Federal tax credits will provide an additional revenue stream once it captures the carbon.
The DAC venture is likely to drain Oxy’s cash flow until it becomes financially viable. But it is a sign that at least one of America’s oil producers sees climate change as a business opportunity.